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US Federal Reserve hints at interest rate rise in 2015 | |
(about 1 hour later) | |
The US Federal Reserve Chair Janet Yellen has hinted that interest rates in the US could start to rise in early 2015. | |
Ms Yellen said the Fed could begin raising rates six months after it halts its monthly bond-buying programme. | |
She made the remarks after the Fed said it will scale back bond purchases by a further $10bn (£6bn) per month. | |
This is the third time in a row that the central bank has tightened its stimulus efforts. | |
The latest reduction brings the Fed's monthly bond-buying down to $55bn from $85bn last year. | |
"This is the kind of term it's hard to define," Ms Yellen said at a press conference. "Probably means something on the order of six months, or that type of thing." | |
If bond purchases end - as expected - later this year, this would imply rate increases around April 2015. | |
Broader indicators | Broader indicators |
The Fed lowered its overnight interest rate to 0% in December 2008 as part of the steps it took to trigger growth in the economy amid the global financial crisis. | The Fed lowered its overnight interest rate to 0% in December 2008 as part of the steps it took to trigger growth in the economy amid the global financial crisis. |
That crisis hurt the US economic growth and resulted in high levels of unemployment. | That crisis hurt the US economic growth and resulted in high levels of unemployment. |
Along with lowering the interest rates, the central bank also started buying bonds in an attempt to keep long-term borrowing costs low. | Along with lowering the interest rates, the central bank also started buying bonds in an attempt to keep long-term borrowing costs low. |
The idea was to encourage businesses to borrow and spend more, to try and spur growth in the economy and create more jobs. | |
The stimulus efforts appear to have had an impact and the US economy has been showing signs of recovery of late and the unemployment rate has fallen to 6.7%. | The stimulus efforts appear to have had an impact and the US economy has been showing signs of recovery of late and the unemployment rate has fallen to 6.7%. |
That has seen the central bank scale back its key stimulus measure, the bond-buying programme also known as quantitative easing, for three months in a row. | That has seen the central bank scale back its key stimulus measure, the bond-buying programme also known as quantitative easing, for three months in a row. |
However in its latest policy decision, the Fed said it would look at multiple factors before approving any rise in interest rates. | |
It had previously hinted at doing so once the jobless rate fell to 6.5%. | |
"This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments," it said. | "This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments," it said. |
Nervous markets? | Nervous markets? |
US stock markets fell on the news. | US stock markets fell on the news. |
Some analysts are saying the change in the Fed's guidance had some worried that the rates may rise sooner than expected. | Some analysts are saying the change in the Fed's guidance had some worried that the rates may rise sooner than expected. |
"The Fed moved the goal post again," said David Molar, managing director at Hightower. | "The Fed moved the goal post again," said David Molar, managing director at Hightower. |
"It goes from a 6.5% unemployment threshold to a qualitative approach which is nebulous for the market. | "It goes from a 6.5% unemployment threshold to a qualitative approach which is nebulous for the market. |
"No one knows what will trigger further tapering, a pause in tapering or an increase in asset purchase. It's a major change in policy." | "No one knows what will trigger further tapering, a pause in tapering or an increase in asset purchase. It's a major change in policy." |
Mark Grant, managing director at Southwest Securities added: "What seems to be troubling the market is that even though it reiterated that it wouldn't be raising rates this year, people were put on notice that a hike is coming." | Mark Grant, managing director at Southwest Securities added: "What seems to be troubling the market is that even though it reiterated that it wouldn't be raising rates this year, people were put on notice that a hike is coming." |
"We'll likely see some rise in short rates as a result of this, if not out across the whole curve." | "We'll likely see some rise in short rates as a result of this, if not out across the whole curve." |